As with every type of loan, credit scores play an important role in the qualification process.
Sometimes called a “FICO score,” the credit score is a tool that lenders use when making a determination about lending money.
Traditional financial institutions rely on good credit scores to determine amount as well as interest rate.
Though physicians are thought of as a good bet because of their future income, credit scores are based on credit history. This makes it critical to understand what affects a credit score and what can be done to consistently improve it.
According to Equifax, the average U.S. credit score is 698. Credit scores can go as low as 350 while those few with perfect or almost perfect credit, have scores from the high 700s to 800 – with 850 being the highest amount of points possible.
Physician Loan Programs usually require good to very good credit – scores around 700, on average. Some lenders will still lend to those with a score as low as 680. However, the higher the score, the better the interest rate.
Debt Utilization Ratio is a very important factor with credit score. This factors how much credit a person is using compared to how much they actually have available. Credit cards should be kept below 30% of their available credit.
Another important factor is to keep making payments on time. Missing payments does more damage to credit than anything else. By paying every bill on time every month,credit scores have a better chance of climbing.
Another factor is a healthy credit mix. This consists of two types of credit: Installment loans—where specific amounts are borrowed and payments are made over a specific window of time (IE a car loan or personal loan.). Then there is what is known as revolving credit – where borrowers borrow what they need and it’s paid back monthly from a minimum amount to the full balance – (IE credit cards) Creditors look for both revolving credit and installment loans.
Other elements used for calculating credit scores include how often potential borrowers have applied for credit over the last few months, how long credit accounts have been open (the older the better as long as it’s in good standing) and if there are any defaults, repossessions or bankruptcies.
This is all factored into the overall credit score to determine how likely someone is to repay their debts.
Physicians should stay on top of their credit to always know where they stand.
Credit reports can be obtained every 12 months for free from: Equifax, TransUnion, or Experian. By keeping on top of a credit score, potential borrowers won’t be caught unaware if anything comes up during the loan underwriting process. It’s important to remove any negative marks, reporting or errors before applying for a loan.
The good news is lenders understand what doctors bring to the table and are a good bet financially. However, keeping on top of credit scores can help navigate any potential financial complexity that may come along.
Though physician loans are available in all 50 states, every lender has different guidelines when it comes to credit scores.
For this reason, MD Mortgage Loan has compiled a list of Physician Mortgage Lenders and Banks by state and qualifications. Qualified borrowers can narrow down the list to find the right lender for their individual needs and scores. Sorting through industry-leading competitive rates that fit a variety of financing needs, is the first step.